2023 (10) TMI 87 - AT - Income Tax

Revision u/s 263 - Non deduction of TDS u/s 195 on brokerage pad to non-resident brokers - as per CIT AO has not examined this issue and no evidence has been put forth by the assessee to prove that whether such entities have or do not have permanent establishment in India and whether the assessee failed to deduct tax at source u/s 195 of the Act on the alleged brokerage - HELD THAT - As in the assessment records declaration by the parties of not having any permanent establishment in India having tax residency certificates of other countries were not available. This fact is admitted by assessee as in the paperbook index it is mentioned that the declaration by the parties of not having any permanent establishment in India along with their tax residency certificates have not been filed before the AO and have been filed only for the first time before ld. Pr. CIT. Therefore, when ld. Pr. CIT noticed that no such details were available in the assessment records, he was well within his jurisdiction to invoke the provisions of Section 263 of the Act and carried out the revisionary proceedings and therefore, carrying out such proceedings is well within the provisions of Section 263 of the Act and the relevant grounds of the assessee challenging such invocation of revisionary powers are hereby dismissed. Whether the AO is erroneous and prejudicial to the interests of the revenue? - Whenever an assessee makes any payment outside India, it has to furnish Form 15CB before the banking authorities and such Form 15CB are also uploaded in the income tax portal. So, when the case of the assessee was selected for scrutiny proceedings and in the assessment order ld. AO has observed that the reason includes (1) foreign remittance made to persons located in low tax jurisdiction countries and (2) value of foreign remittance sent by the assessee is higher than the gross total income. As per the audited financial statement against the gross receipts of Rs. 430.16 Crore the net profit before tax is Rs. 1.31 Crore whereas the brokerage paid to agents outside India is Rs. 5.62 Crore. So, based on both the issues as referred by the AO in the assessment order it was bare minimum expected from the AO to have called for the details of all the non-resident brokers to whom the brokerage has been paid and the basis of its calculation and why tax has not been deducted. AO has not called for any such details and therefore, the assessee did not file these details. The copy of the notice u/s 142(1) of the Act has also not been filed by the assessee. We thus, find that no such question was raised by the AO during the course of assessment proceedings about the alleged issue of deductibility of tax at source u/s 195 of the Act on the payment of brokerage - By not calling these details the assessment proceedings are erroneous and since the Revenue is involved which has not been examined by the AO, the assessment proceedings are prejudicial to the interests of the revenue also. Whether Pr. CIT ought to have raised independent enquiry on the issue? - No merit in this issue raised by the assessee because it is not a case of any incomplete enquiry for which ld. Pr. CIT ought to mention that what should have been done by the AO. It is a case where there is an apparent issue mentioned in the reason for selecting the case for scrutiny which should have been examined by the AO but nothing has been done on the part of the AO. CIT has called for the complete details from the assessee which have been filed by it before ld. Pr. CIT -Now, the further course of action cannot be taken up by ld. Pr. CIT to examine each and every party who has claimed to be non-resident and not liable to be taxed in India because it does not have any permanent establishment in India. This exercise ought to be carried out by the AO only. Thus CIT was justified in invoking the revisionary power u/s 263 of the Act and has rightly held the order of the AO dated 25.12.219 as erroneous and prejudicial to the interests of the revenue - Decided against assessee.

Summary

Issues Involved:
1. Legality and jurisdiction of notice issued and order passed under Section 263 of the Income Tax Act, 1961.
2. Error and prejudice in the assessment order under Section 143(3) of the Act.
3. Adequacy of investigations carried out by the Assessing Officer (AO).
4. Application of mind by the AO in framing the assessment order.
5. Consideration of details and evidence by the AO.
6. Legality of further inquiries suggested by the Principal Commissioner of Income Tax (Pr. CIT).
7. Independent inquiry by the Pr. CIT.
8. Legality of the notice and order under Section 263.
9. Jurisdiction of the Pr. CIT in setting aside the assessment order.
10. Interpretation of evidence and materials on record.

Summary:

1. Legality and Jurisdiction of Notice Issued and Order Passed under Section 263:
The assessee contended that the notice issued and the order passed under Section 263 by the Pr. CIT were illegal, bad in law, and without jurisdiction. However, the Tribunal found that the Pr. CIT was within his jurisdiction to invoke Section 263 as the AO did not examine the issue of tax deduction on brokerage paid to non-resident brokers, making the assessment order erroneous and prejudicial to the interests of the revenue.

2. Error and Prejudice in the Assessment Order under Section 143(3):
The Tribunal noted that the AO failed to examine the issue of tax deduction at source on brokerage paid to non-resident brokers, which amounted to Rs. 5,62,07,050/-. The Pr. CIT observed that the AO did not scrutinize whether these non-resident brokers had a permanent establishment in India, nor did the assessee provide evidence to that effect. This oversight rendered the assessment order erroneous and prejudicial to the interests of the revenue.

3. Adequacy of Investigations Carried Out by the AO:
The Tribunal agreed with the Pr. CIT's view that the AO did not conduct detailed investigations into the brokerage payments to non-resident brokers. The AO's failure to call for necessary details and documents during the assessment proceedings indicated a lack of thorough investigation.

4. Application of Mind by the AO in Framing the Assessment Order:
The Tribunal found that the AO did not apply his mind adequately while framing the assessment order. The AO did not question the non-deduction of tax at source on the brokerage payments, which was a critical issue given the substantial amount involved and the nature of the payments.

5. Consideration of Details and Evidence by the AO:
The Tribunal noted that the declarations by the non-resident brokers of not having a permanent establishment in India and their tax residency certificates were not available in the assessment records. These details were only provided to the Pr. CIT during the revisionary proceedings, indicating that the AO did not consider all relevant evidence.

6. Legality of Further Inquiries Suggested by the Pr. CIT:
The Tribunal dismissed the assessee's contention that the Pr. CIT's suggestion for further inquiries was illegal. It emphasized that the Pr. CIT was justified in directing the AO to conduct a fresh assessment, as the initial assessment lacked proper examination of the critical issue of tax deduction on brokerage payments.

7. Independent Inquiry by the Pr. CIT:
The Tribunal found no merit in the assessee's argument that the Pr. CIT should have conducted an independent inquiry. It clarified that the Pr. CIT's role was to identify the lack of inquiry by the AO and direct the AO to conduct the necessary investigations, which was appropriately done.

8. Legality of the Notice and Order under Section 263:
The Tribunal upheld the legality of the notice and order under Section 263, stating that the Pr. CIT followed due process by providing the assessee an opportunity to be heard and making necessary inquiries before passing the order.

9. Jurisdiction of the Pr. CIT in Setting Aside the Assessment Order:
The Tribunal confirmed that the Pr. CIT had the jurisdiction to set aside the assessment order and direct the AO to make a fresh assessment. The Pr. CIT's actions were within the scope of Section 263, given the AO's failure to address the critical issue of tax deduction on brokerage payments.

10. Interpretation of Evidence and Materials on Record:
The Tribunal found that the evidence and materials on record were not properly construed or judiciously interpreted by the AO. The Pr. CIT's direction for a fresh assessment was justified to ensure a thorough examination of the issue.

Conclusion:
The appeal filed by the assessee was dismissed, and the Tribunal upheld the Pr. CIT's order invoking Section 263, directing the AO to re-examine the assessment with a focus on the brokerage payments to non-resident brokers and the associated tax deduction issues.